Physical Distribution Management is another name for logistics. The physical distribution of commodities is handled by logistics, which is a service provided by a variety of companies. FMCG, consumer durables, and a variety of other businesses all produce goods regularly. These items must be delivered to distributors and dealers, and then to the final consumer. Logistics refers to the process of moving items from a corporation to a middleman or a final customer.
However, logistics does not solely refer to transportation. A corporation may engage in a variety of logistical activities or functions.
For example, if you need to transport a product from your warehouse to a dealer, you’ll need to change your warehouse inventory (because goods are leaving). Similarly, you’ll need to keep track of when the goods left your warehouse and arrived at the dealer. In the meantime, you must guarantee that the goods are handled properly and arrive at the dealer in the desired condition. If the dealer makes any refunds, they must be accounted for as well.
We can see from the previous example that numerous logistics activities must be managed. In this essay, we’ll look at six different logistical functions.
Logistics activities or Functions of Logistics
The logistics activities begin with order processing, which may be handled by a company’s commercial department. The commercial department is in charge of ensuring that payment and delivery terms are met before processing the order within the organization.
Essentially, the commercial team approves the customer’s order and sends it to the warehouse. If the consumer has paid, a commercial team enters the information into the system and informs the warehouse that the customer has placed a 10-unit order, and the warehouse must deliver 10 pieces.
In many organizations, the commercial entry deducts the warehouse inventory as well. So, if the commercial team approves a buy order for ten units, the available inventory will be reduced by ten pieces to avoid double ordering. This is a critical phase in logistics because any errors here (incorrect quantity, delivery address, etc.) can disrupt the entire logistics process.
The movement of products within a warehouse is known as material handling. It entails handling the goods in a way that allows the warehouse to handle orders quickly. Although it may appear to be a mundane operation, it is a vital one that must be done regularly in any warehouse.
It is relatively simple to shift one thing from one location to another in a small shop with 100 products. However, if this little shop does not know where the products are stored, the shopkeeper will have to look for the order and the product every time he receives it. He’ll have to look for it in all of his 100 products, then move the others out of the way so that he can deliver the desired item to the customer.
Multiply this scenario by a factor of 100. Large corporations’ warehouses can be half a mile or more in length. Consider how much material is kept in the warehouse. If the warehouse manager doesn’t know where the stuff is kept or how he’ll get it to the warehouse’s dispatch center, he’ll be in huge trouble, and his productivity and efficiency will suffer. As a result, materials handling is a crucial logistical function.
In logistics management, effectively arranging material within the warehouse to enable smooth transportation and distribution is a crucial task. As the warehouse expands in size, this becomes increasingly vital. For material handling, Amazon, for example, employs a mix of robotics, artificial intelligence, and humans. Amazon is projected to dispatch 16 lakh packages per day. This translates to 70,000 packets each hour. Consider the chaos that would ensue if Amazon did not use the greatest material handling equipment and procedures.
Take, for example, LG or Samsung, both of which are consumer durables corporations with operations in various countries. Their manufacture may be concentrated in one location, but their distribution is global. As a result, warehousing plays a significant role and is a key Logistics activity.
The main thing to remember about storage is that it should be close to the dealer or distributor’s location and allow for easy delivery of goods. If a branded product takes a week to arrive but is unbranded, it may not sell as well.
As a result, it makes sense for the branded company to have a nearby warehouse so that the goods can be delivered quickly. When a brand establishes itself in a new region, the first thing it does is lease a new warehouse to be closer to the territory and end clients.
The positioning of warehouses also helps to relieve stress on the mother warehouse (large warehouses which stock most of the products). These warehouses can take the load of deliveries and become interdependent to ensure that goods are delivered to consumers whether demand is high or production is low.
If a company has 100 units of a product in stock but only needs 10 units, the company has wasted money by investing in 90 units. This is money that can be utilized as working capital, and it is money that banks charge interest on.
Another company, on the other hand, had a demand of 500 units but only created 200, assuming that demand would be lower. They’ve now lost the orders, which is a missed opportunity. The ideal company will have produced 100 units, anticipates a need of 50 units, and is prepared to meet that demand even if demand doubles. However, they are constantly monitoring demand and are prepared to meet it without having to spend heavily on manufacturing.
With the preceding example, you can see how important inventory control is in logistics. Inventory management has become one of the most significant roles of logistics, particularly with the introduction of various production strategies such as Just-in-Time manufacturing, lean manufacturing, and other manufacturing procedures that have reduced the cost of inventory management.
Now we’ll look at one of the most important logistical activities, which is also one of the most resource-intensive and revenue-intensive segments of the industry. Transportation is expensive for a simple reason: fuel. Fuel is expensive, whether it’s petrol, diesel, or gas, and it’s usually used in transportation. This is why corporations spend tens of thousands of dollars to keep transportation costs under control, as it is one of the most variable expenses for any business.
The physical conveyance of goods from the manufacturer to the distributor or dealer, as well as from the dealer to the ultimate client, is referred to as transportation. In most cases, firms are only involved until the distributor or dealer receives the product. The distributor is then in charge of delivering the product to the final customer. However, transportation is a cost to the dealer as well, reducing his profit – forcing the corporation to give the dealer more profits to offset his expenditures.
The lower a company’s transportation costs are, the better their storage and inventory management are. The cost-effectiveness of transportation is heavily influenced by economies of scale. FMCG companies used the “splitting the bulk” strategy to cut shipping costs and improve overall logistical functions.
There are two types of packaging: one that a customer sees on the shelf of a supermarket or hypermarket, where the package appears appealing and prompts the customer to purchase the package; and the other that a customer sees on the shelf of a supermarket or hypermarket, where the package appears appealing and prompts the customer to purchase the package. The other is transport packing, in which products are packed in bulk to reduce breakage or spillage while yet allowing them to safely carry large volumes of product from one location to another.
The logistics team is responsible for packaging the product since otherwise, the product would arrive damaged to the end client, resulting in a significant expense to the organization. This is why, especially in export markets, a significant amount of money is spent on product packaging. The packaging may only cost 1-2 percent of the product’s worth, but if it fails during shipping, it will result in a 100 percent cost due to product damage and loss.
All of the functions of logistics and logistics activities that must be handled in any significant corporation are listed above. Logistics are viewed by management in two ways.
In some ways, management views logistics as a set of interconnected systems. So, one system may be transportation and another could be storing. The cost of systems as individuals is managed in this scenario, and they are calculated as individual charges in the accounting books.
In other management methods, such as where the products are large and sturdy rather than small components, logistics is treated as a whole and given its heading in the books of accounts. The many logistics tasks are grouped as a single cost, and the overall cost is reduced.